Here’s why RLH properties. of (BMV: RLHA) can afford to go into debt

Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital”. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. We note that RLH Properties, SAB de CV (BMV: RLHA) has debt on its balance sheet. But the real question is whether this debt makes the business risky.

When Is Debt a Problem?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

Check out our latest review for RLH Properties. of

What are RLH properties. debt ?

The image below, which you can click for more details, shows that RLH Properties. de had Mexican $ 8.42 billion in debt at the end of June 2021, down from Mex $ 9.64 billion year over year. On the other hand, he has 4.34 billion Mexican dollars in cash, resulting in net debt of around 4.08 billion Mexican dollars.

BMV: RLH A History of debt to equity September 25, 2021

A look at the properties of RLH. Responsibilities of

According to the latest report published, RLH Properties. de had a liability of M $ 3.25 billion due within 12 months and a liability of M $ 10.1 billion due beyond 12 months. On the other hand, he had cash of 4.34 billion Mexican dollars and 1.17 billion Mexican dollars in receivables due within one year. It therefore has liabilities totaling 7.88 billion Mexican dollars more than its cash and short-term receivables combined.

RLH properties. de has a market cap of Mex $ 15.6 billion, so it could most likely raise funds to improve its balance sheet, should the need arise. But it is clear that it is absolutely necessary to take a close look at whether it can manage its debt without dilution. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in isolation; from RLH Properties. de will need income to pay off this debt. So if you want to know more about its profits, it may be worth checking out this chart of its long term profit trend.

Over 12 months, RLH Properties. de has seen his income hold fairly steady, and he has not reported any positive earnings before interest and taxes. While that doesn’t impress much, it’s not too bad either.

Emptor Warning

During the last twelve months RLH Properties. produces earnings before interest and taxes (EBIT). To be precise, the EBIT loss amounted to MEX 673 million. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. We therefore believe that its record is a bit strained, but not irreparable. Another reason to be cautious is that Mexican $ 1.3 billion has been lost in negative free cash flow over the past twelve months. In short, it is a really risky action. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. To this end, you should inquire about the 2 warning signs we spotted with RLH Properties. of (including 1 which should not be ignored).

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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